Asia ex-Japan Credit - Analyst, Bondcritic

Brayan Lai

Asia ex-Japan Credit - Analyst

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Credit

We initiate our coverage on <a href="https://www.smartkarma.com/entities/3121" target="_blank" data-smartkarma-citation="entities:3121:1">Lippo Karawaci Tbk Pt (LPKR IJ)</a> (“LK”) with a NEUTRAL recommendation on the LPKRIJ complex and a tactical OVERWEIGHT recommendation on LPKRIJ 26s.
LK is a large integrated Indonesian property company with businesses spanning development, commercial/retail leasing, healthcare operation and asset management. The company began operations in January 1993 (listing on the JCI in 1996) with the same namesake development “Lippo Karawaci” (subsequently rebranded as Lippo Village) in Tangerang, near central Jakarta. The company is renowned for developing large-scale self-contained townships with various residential, commercial, light industrial and infrastructure elements.
The company has been on a negative credit trajectory over the past few years which has seen all 3 major rating agencies downgrade its credit from “BB-” equivalent to “B/B-“ with a negative outlook at the time of this report (with the latest downgrades effected in April/May 2018). The primary causes for the company’s credit deterioration stem from its increasing focus towards asset ownership (a long-term game requiring immense financial resources) and resultant heavy working-capital/capex requirements which have been internally funded and/or by new paid-up capital/equity. While avoiding overleveraging itself at the onset, this has also meant the company has diluted discretionary cashflow to itself, creating liquidity pressure and weakening debt-servicing.
In this note, we explore some of the causes of the weakness in the company’s credit to determine whether there are any real short-term liquidity issues, and at the same time decipher the steps required to stabilize the credit in the medium-to-long term.

We initiate our coverage on Lippo Karawaci Tbk Pt (LPKR IJ) (“LK”) with a NEUTRAL recommendation on the LPKRIJ complex and a tactical OVERWEIGHT recommendation on LPKRIJ 26s.
LK is a large integrated Indonesian property company with businesses spanning development, commercial/retail leasing, healthcare operation and asset management. The company began operations in January 1993 (listing on the JCI in 1996) with the same namesake development “Lippo Karawaci” (subsequently rebranded as Lippo Village) in Tangerang, near central Jakarta. The company is renowned for developing large-scale self-contained townships with various residential, commercial, light industrial and infrastructure elements.
The company has been on a negative credit trajectory over the past few years which has seen all 3 major rating agencies downgrade its credit from “BB-” equivalent to “B/B-“ with a negative outlook at the time of this report (with the latest downgrades effected in April/May 2018). The primary causes for the company’s credit deterioration stem from its increasing focus towards asset ownership (a long-term game requiring immense financial resources) and resultant heavy working-capital/capex requirements which have been internally funded and/or by new paid-up capital/equity. While avoiding overleveraging itself at the onset, this has also meant the company has diluted discretionary cashflow to itself, creating liquidity pressure and weakening debt-servicing.
In this note, we explore some of the causes of the weakness in the company’s credit to determine whether there are any real short-term liquidity issues, and at the same time decipher the steps required to stabilize the credit in the medium-to-long term.

Lippo Karawaci: Buying Time To Avert Distress

Indonesia

PT Gowa Makassar Tourism Development Tbk develops tourist attractions, apartments, commercial buildings, housing, recreational facilities, hotels, golf courses, country clubs, and art centers.

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Gowa Makassar Tourism Devel (GMTD IJ)

Lippo Karawaci: Buying Time To Avert Distress

We initiate our coverage on Lippo Karawaci Tbk Pt (LPKR IJ) (“LK”) with a NEUTRAL recommendation on the LPKRIJ complex and a tactical OVERWEIGHT...

Bondcritic

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